Dave Baker

To continue this discussion, please use this thread instead: http://www.benefitslink.com/boards/index.p...=ST&f=20&t=7366

If contributions from the church are involved (in addition to voluntary salary reduction-type contributions from paychecks), there should be a "plan document" that includes a definition of "compensation." Do you have one?

From IRS Publication 571: You must receive all, or at least a certain minimum, of your interest accruing after 1986 in the TSA plan by April 1 of the calendar year following the later of the calendar year in which you become age 70 1/2 or the calendar year in which you retire. Check with your employer, plan administrator, or provider to find out whether this rule also applies to pre-1987 accruals. If not, a minimum amount of these accruals must begin to be distributed no later than the end of the calendar year in which you reach age 75. For each year thereafter, the minimum distribution must be made by the last day of the year. If you do not receive the required minimum distribution, you are subject to a nondeductible 50% excise tax on the difference between the required minimum distribution and the amount actually distributed. For more information on minimum distribution requirements and the additional tax that applies if too little is distributed each year, see Publication 575. Some information (but not a great deal) about the calculation of minimum distributions is contained in Publication 575 ... see http://www.irs.ustreas.gov/prod/forms_pubs...pubs/p57507.htm Best bet is to have an accountant or attorney take responsibility for making the calculations for you, unless you enjoy really getting your hands dirty on this sort of thing. Also, the "big picture" is that you're supposed to follow the terms of your particular custodial account (which has been reviewed by the IRS or at least has been designed by Fidelity to fall under the rules set out in section 403(B) of the Internal Revenue Code, including the minimum distribution requirement). Those terms might be quite specific, or they could be fairly liberal and merely refer you to the statute and regulations for the various ways that the minimum distribution requirement can be met.

Proposed regs: http://www.benefitslink.com/taxregs/1.401a...-proposed.shtml

How much stock do you own in the incorporated business?

It's dense stuff, but the regulations under section 410(B) (click) have the "official" examples. One Q&A in the 401(k) column on BenefitsLink has some good discussion of minimum coverage in the context of employers who are members of a controlled group (where the minimum coverage rules get fun ) -- http://www.benefitslink.com/benefits-bin/q...atabase=qa_401k

More information here: http://benefitslink.com/boards/index.php?showtopic=2910 http://benefitslink.com/boards/index.php?showtopic=4359 http://www.benefitslink.com/links/19980712-000611.shtml http://www.benefitslink.com/links/19991129-003346.shtml http://www.benefitslink.com/links/19990728-002373.shtml http://www.benefitslink.com/links/19980312-000326.shtml http://www.benefitslink.com/links/19990817-002513.shtml http://www.benefitslink.com/links/19990219-001348.shtml http://www.benefitslink.com/links/19990708-002217.shtml

A list of commercial providers of this data appears here: http://www.benefitslink.com/yellowpages/mark_dat.shtml

I have never seen a bunch as motivated as the pre-paid legal crew. Must be hellacious commissions, super-pumped motivational programs or prospects of big sales opportunities (or all three). Thing that makes me mad is the way my town (Orlando) is plastered with illegal "Make Money At Home; 27-Year-Old NYSE Company; Start-Up Opportunity" signs on telephone poles, streetlights, etc. -- which turns out to be a pre-paid legal services company when you dial the 800 number.

I dunno, but you'll find this interesting: Challenging Long Term Disability and Health Benefit Denials Under ERISA, by attorney Edward G. Connette, published by the Health Administration Responsibility Project Excerpt: "This paper will discuss procedures for challenging Long Term Disability ('LTD') and health benefits coverage denials under ERISA ... the majority of reported decisions arise from cases challenging health benefits denials for procedures or drugs deemed 'experimental,' 'investigative' or 'not medically necessary' ... the most commonly litigated issue today is coverage for various HDC/PSCR treatment protocols for breast, ovarian and brain cancer patients." Link: http://www.benefitslink.com/links/20000727...27-006369.shtml

The 2000 final regs are here: http://www.benefitslink.com/taxregs/72p-final.shtml

Here's a link to the sample language that came to me in 1998 -- probably hasn't been changed -- seems to be the Cincinnati language Christine refers to. This version doesn't have 401(k)-specific language, though. I know there is sample language out there for 401(k) plans. http://www.benefitslink.com/articles/terml...mlanguage.shtml

Here's a link to an interesting article about ERISA's enactment, with considerable discussion of the governmental plans exception from ERISA coverage: http://www.benefitslink.com/links/20000912...12-006899.shtml

http://www.benefitslink.com/articles/reform000907.shtml (click) Provocative. Comments, anybody?

Were they supposed to be in Plan A all along? Why? (Plan document? Plan B only covers employees of Company B?)

Don't think so -- but is the insurance is not on the life of the IRA owner or a relative? Or are you concerned about the prohibition against IRAs investing in life insurance?

Sounds like you might have your answer, if it's really the "applicable definition" ... maybe something for the plan administrator to determine, if there's some ambiguity in the plan's definition? I'd think it's OK to define (or construe) compensation to include such disability for purposes of ERISA, but you'd have a potential discrimination-in-favor-of-HCEs issue and my guess is that such an expansive definition might go beyond the section 404 definition of compensation, which could be important if the plan is close to the 15%-of-aggregate-compensation deduction limit (for a profit sharing plan). I seem to recall something fairly recently added to 404 or another code section about plans being permitted to count certain disability payments until retirement age as compensation if the plan so chooses, come to think of it.

I wouldn't think the plan document would provide the participant with an account balance as of today that takes into account as-yet-uncontributed assets, even though the individual eventually will have more money "as of" the valuation date when the assets are contributed. As of today, he or she is entitled to a certain proportion (slice) of the pie, but the pie isn't as big as it's going to be in a few months. The participant can take the slice now and get another sliver as a supplemental distribution after the contribution has been made.

More articles re fringe benefit ideas are here: http://www.benefitslink.com/index/fringebe...ral/index.shtml

Link to the opinion is at http://www.benefitslink.com/links/20000801...01-006422.shtml Anybody think the Tax Court got anything wrong, in its reasoning or result?

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission. Copyright 2000 TRI Pension Services, all rights reserved. Post a reply to this thread if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Final Regulations Issued: Repayment of Previously-Taxed Participant Loan * * * Repayment of previously-taxed loan. If the loan is repaid after the deemed distribution has occurred, the repayments (including repayments of interest) are treated as tax basis. See http://www.benefitslink.com/taxregs/72p-final.shtml#QA21 . To the extent a previously-taxed loan is repaid, that portion is no longer a receivable, but reflects part of the non-loan assets included in the participant's account balance (or accrued benefit, in the case of a defined benefit plan). That portion is part of the reportable gross distribution, so the tax basis generated from those repayments is taken into account to determine the taxable portion of that gross distribution. Note that loan repayments are not treated as employee contributions for purposes of the nondiscrimination test under §401(m) nor for purposes of the §415 limits, even though tax basis is generated by such loan repayments. See the last sentence of Q&A-21(a). <UL>Example. Suppose in the earlier example; click that Bill recommenced loan payments in 2002. By the time the plan makes the lump sum distribution to Bill, the loan receivable balance is only $10,400. The total loan payments made by Bill after the deemed distribution totaled $5,920, which included additional interest. Now Bill's account consists of $10,400 loan receivable and $69,115 cash. The cash consists of the $61,300 assumed in the prior example, plus the loan repayments of $5,920, plus an additional $1,895 of investment earnings that were generated because of the loan repayments made by Bill. The plan reports a gross distribution of $69,115, but the taxable portion of that distribution is only $63,195. Bill has tax basis of $5,920, which represents his total loan repayments following the deemed distribution of the loan.</UL>

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission. Copyright 2000 TRI Pension Services, all rights reserved. Post a reply to this thread if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Final Regulations Issued: Crediting of Tax Basis on Defaulted Participant Loan at Time of Offset * * * Effective date. The regulations are effective for loans made on or after January 1, 2002. See Q&A-22(B) [click]. (The 1998 proposed regulations clarified that the effective date would be no earlier than the January 1 which is at least 6 months following the publication of final regulations.) The plan year of the plan is irrelevant. In other words, all plans become subject to the regulations as of January 1, 2002, even if that date occurs in the middle of a plan year. This effective date does not mean that plans may ignore IRC §72(p) before January 1, 2002. The statutory effective date of §72(p) was for loans made after August 13, 1982 (although the quarterly amortization rule and some changes to the principal residence loans did not apply until after 1986). Between the applicable statutory date of any provision of §72(p) and the regulatory effective date, plan administrators must apply a reasonable, good faith standard of compliance. Compliance with the proposed regulations, or any provisions of these final regulations, before the regulatory effective date would be treated as satisfying the good faith compliance standard. The final regulations follow the proposed regulations very closely, so a detailed analysis is not provided in this summary. Here are some highlights. * * * No basis credited because of deemed distribution/reporting rules when defaulted loan is later offset. When a loan becomes a deemed distribution, the amount taxed is not credited as tax basis. However, see the transition rule in Q&A-22© [click], where accrued interest that was taxed as a deemed distribution is treated as tax basis. When the plan offsets the loan receivable, the offset amount is not reported again as part of the participant's gross distribution. In other words, the prior deemed distribution of the loan is treated as the distribution of that loan for reporting purposes, so the cashless portion of the distribution that represents the loan offset is not reported. Since the loan receivable is not reported when it is offset, there is no need to credit basis for that loan. Interest that accrues after the deemed distribution is also not reported as part of the gross distribution when the loan offset later occurs, even though the accrued interest was not previously subject to taxation. Example. Bill defaulted on a participant loan in 2000. At the time of the default, the plan deemed a distribution of $12,150. That was reported on Form 1099-R for the calendar year in which the default occurred. The loan receivable remained an asset of the plan because there was no distribution event with respect to the defaulted amount. The plan posted accrued interest, but did not report it as a deemed distribution. In 2003, Bill terminates employment and requests a lump sum distribution of his account. At the time of the distribution, Bill's account consists of $61,300 cash and $15,250 loan receivable, (which includes the $12,150 initial default amount and $3,100 accrued interest). The plan offsets the loan receivable and the accrued interest and distributes the cash (20% of which is withheld for federal income taxes). The Form 1099-R should report a gross distribution of $61,300, which is the cash portion of Bill's account, and shows the same amount as the taxable distribution because Bill does not have any tax basis. He does not get tax basis for the previously-taxed loan because the loan offset is not reported as part of the gross distribution. Since the loan receivable and the accrued interest are not treated as part of the distribution, the 20% withholding liability is calculated only on the cash portion of $61,300.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission. Copyright 2000 TRI Pension Services, all rights reserved. Post a reply to this thread if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Final Regulations Issued: Accruing Interest on Defaulted Participant Loan * * * Effective date. The regulations are effective for loans made on or after January 1, 2002. See Q&A-22(B) [click]. (The 1998 proposed regulations clarified that the effective date would be no earlier than the January 1 which is at least 6 months following the publication of final regulations.) The plan year of the plan is irrelevant. In other words, all plans become subject to the regulations as of January 1, 2002, even if that date occurs in the middle of a plan year. This effective date does not mean that plans may ignore IRC §72(p) before January 1, 2002. The statutory effective date of §72(p) was for loans made after August 13, 1982 (although the quarterly amortization rule and some changes to the principal residence loans did not apply until after 1986). Between the applicable statutory date of any provision of §72(p) and the regulatory effective date, plan administrators must apply a reasonable, good faith standard of compliance. Compliance with the proposed regulations, or any provisions of these final regulations, before the regulatory effective date would be treated as satisfying the good faith compliance standard. The final regulations follow the proposed regulations very closely, so a detailed analysis is not provided in this summary. Here are some highlights. * * * Accruing interest on defaulted loans. addresses the treatment of accrued interest following the taxation of a loan as a deemed distribution, adopting the rules as they were stated in the proposed regulations. After a loan is deemed distributed under section 72(p) (e.g., the plan goes into default, as described in Q&A-10), interest that accrues thereafter is disregarded for section 72 purposes. That means the accrued interest is not taxable, neither at the time it accrues nor at the time the loan receivable is later offset. However, until an offset occurs, the accrued interest is taken into account to determine the maximum amount of any subsequent loan to the participant. (Note that the offset is an actual distribution event and cannot be permitted before an actual distribution is permitted under the plan. Until there is an actual distribution, the loan is not treated as a distribution for qualification purposes, only for tax purposes.) Example. Lynn borrows $10,000 from her employer's profit sharing plan. The loan is not repaid through payroll withholding deductions. Instead, Lynn must make monthly installment payments by writing a check to the plan for each payment. As of December 31, 2002, the outstanding balance becomes a deemed distribution because of a monthly payment missed on September 30, 2002. (Lynn makes no payments between September 30, 2002, through December 31, 2002, that can be treated as covering the missed payment.) The outstanding balance as of December 31, 2002, is $8,250 (which includes accrued interest through that date). That amount is taxed as a deemed distribution under section 72(p). Under the terms of the plan, distribution is not available to Lynn, so the loan amount cannot be offset at the time of default. After December 31, 2002, interest continues to accrue at $200 per month. The post-2002 accrued interest is not included in Lynn's income. However, the accrued interest is added to the deemed distribution amount ($8,250) to determine whether any subsequent loan made to Lynn satisfies the limitations under section 72(p). As a non-401(k) profit sharing plan, the plan could be written to treat default as a distribution event, which would trigger a loan offset, i.e., an actual distribution, coincident with the default. The example assumes the plan does not contain this provision. If such a provision were in the plan, Lynn's account would be offset by the unpaid loan balance, and would be reported as an actual distribution, rather than as a deemed distribution. No interest would accrue and there would be no outstanding loan to Lynn if a new loan were to be made to her. Note that proposed regulations also issued today (see separate summary above) would impose additional conditions if another loan is made to the participant before the defaulted loan is offset. These conditions are designed to ensure that any subsequent loan is more likely to be repaid.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission. Copyright 2000 TRI Pension Services, all rights reserved. Post a reply to this thread if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Final Regulations Issued: Guidance on Electronic Media in Connection With Participant Loans * * * Effective date. The regulations are effective for loans made on or after January 1, 2002. See Q&A-22(B) [click]. (The 1998 proposed regulations clarified that the effective date would be no earlier than the January 1 which is at least 6 months following the publication of final regulations.) The plan year of the plan is irrelevant. In other words, all plans become subject to the regulations as of January 1, 2002, even if that date occurs in the middle of a plan year. This effective date does not mean that plans may ignore IRC §72(p) before January 1, 2002. The statutory effective date of §72(p) was for loans made after August 13, 1982 (although the quarterly amortization rule and some changes to the principal residence loans did not apply until after 1986). Between the applicable statutory date of any provision of §72(p) and the regulatory effective date, plan administrators must apply a reasonable, good faith standard of compliance. Compliance with the proposed regulations, or any provisions of these final regulations, before the regulatory effective date would be treated as satisfying the good faith compliance standard. The final regulations follow the proposed regulations very closely, so a detailed analysis is not provided in this summary. Here are some highlights. * * * Guidance on electronic media. The regulations require that the loan be evidenced by an enforceable agreement that sets forth: the amount of the loan, the date of the loan, and the repayment schedule. See Q&A-3(B) [click]. The enforceable agreement may be in the form of a written paper document or in an electronic medium. The principles set forth in Treas. Reg. §1.411(a)-11(f)(2), regarding the use of electronic media to obtain participant consent to a distribution, are applied here as well. The electronic medium must: be reasonably accessible to the participant, be reasonably designed to preclude any individual other than the participant from requesting a loan, provide a reasonable opportunity for the participant to confirm, modify or rescind the terms of the loan before the loan is made, [and] provide confirmation of the loan within a reasonable time after the loan is made. Confirmation may be provided in a paper document or electronically. If the confirmation is provided electronically, it must be designed in a manner that is no less understandable than a written paper document, and the participant must be advised that he or she may request a written paper document at no charge. An agreement does not have to be signed by the participant, so long as under applicable law, the agreement is legally enforceable without a signature. The purpose of this clarification in the final regulations is to enable plans to process loans electronically without a signature, if such procedure does not compromise the enforceability of the loan agreement. The IRS had taken this position in an informal ruling issued on June 26, 1997, which was reprinted in CCH Pension Plan Guide, ¶17,396L.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission. Copyright 2000 TRI Pension Services, all rights reserved. Post a reply to this thread if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Final Regulations Issued: Cure Period for Defaulted Loans , Q&A-1 through Q&A-19, and Q&A-21 through Q&A-22, 65 F.R. 46588 (July 31, 2000), provide guidance, in question-and-answer format, on the tax issues relating to participant loans, as set forth in IRC §72(p). A loan is taxed as a distribution unless it satisfies the requirements of §72(p)(2). The regulations finalize two sets of proposed regulations, one issued in 1995 and the other issued in 1998. The 1998 proposed regulations supplemented the 1995 proposed regulations, to provide guidance on the treatment of accrued interest after a plan loan is deemed to be distributed under section 72(p), tax basis issues relating to a deemed distribution, and the effective date of the regulations. Along with these final regulations, the Treasury is issuing a new set of proposed regulations [click] ... to address refinancing transactions, the tax treatment of multiple loans, and military service leave. Effective date. The regulations are effective for loans made on or after January 1, 2002. See Q&A-22(B) [click]. (The 1998 proposed regulations clarified that the effective date would be no earlier than the January 1 which is at least 6 months following the publication of final regulations.) The plan year of the plan is irrelevant. In other words, all plans become subject to the regulations as of January 1, 2002, even if that date occurs in the middle of a plan year. This effective date does not mean that plans may ignore IRC §72(p) before January 1, 2002. The statutory effective date of §72(p) was for loans made after August 13, 1982 (although the quarterly amortization rule and some changes to the principal residence loans did not apply until after 1986). Between the applicable statutory date of any provision of §72(p) and the regulatory effective date, plan administrators must apply a reasonable, good faith standard of compliance. Compliance with the proposed regulations, or any provisions of these final regulations, before the regulatory effective date would be treated as satisfying the good faith compliance standard. The final regulations follow the proposed regulations very closely, so a detailed analysis is not provided in this summary. Here are some highlights. Cure period for defaulted loans. The final regulations retain the rules for correcting missed loan payments before a deemed distribution, due to default, must be triggered. The proposed regulations had referred to this as a "grace period," but the final regulations call it a "cure period." Q&A-10(a) of the regulations permits the cure period to run through the end of the calendar quarter that follows the calendar quarter in which the missed installment payment was due. When the loan is in default (taking into account any permitted cure period), the entire balance due is taxable, including accrued interest through the date of default. Example. A participant is making monthly installments on a loan from the plan. The participant misses the payment due August 31, 2003, and subsequent monthly payments. The provides a 3-month cure period. The cure period for the August 31, 2003, payment ends November 30, 2003. The amount is not paid by then. The taxable distribution is $17,157, which represents the participant's outstanding loan balance, but interest accrued through November 30, 2003. In an alternative scenario, the regulations provide that the plan's cure period ends on the last day of the calendar quarter following the quarter in which the installment payment is missed. In that case, the cure period would not end until December 31, 2003, so there would be an additional month of accrued interest. In the example, the taxable distribution is increased to $17,282.